Mark Mobius on the Trump sell-off: Remember, all news is local

Think Wednesday’s global stock market sell-off was the moment when investors finally realised that President Donald Trump’s agenda, if not his political career, is in jeopardy? Don’t be so sure, the emerging markets pioneer Mark Mobius has told MarketWatch.

“At the end of the day, you have to remember that all news is local,” Mobius, executive chairman of the Templeton Emerging Markets Group at Franklin Templeton Investments, said on the sidelines of the SkyBridge Alternatives, or SALT, hedge fund conference.

That means while someone sitting in London may see the BBC talking about Trump’s travails, most of the newscast will be spent talking about the upcoming UK election and other local issues. It’s the same story around the globe, he said.

Moreover, markets discount events quickly, and “even though the market is down today, you can’t say it was caused by this controversy,” he said. “There are too many other factors at work.”

US stocks suffered their biggest one-day drop in eight months Wednesday, with the Dow Jones Industrial Average DJIA and the S&P 500 both falling 1.8%. European and Asian stocks also saw weakness, following a New York Times report that former Federal Bureau of Investigation Director James Comey had said, in a memo, that Trump had asked him to drop an investigation into the actions of former national security adviser Michael Flynn.

Mobius also repeated his theory that persistently low volatility has been a function, in part, of investors being bombarded by information via social media and other outlets. As a result, many might opt to ignore or to discount much of that information flow, he said.

In emerging markets, Mobius said China and India remain among the best places for large funds to invest because they are “not only the fastest-growing of emerging market economies, but they’re huge in terms of opportunities in terms of companies and “millions of consumers”.

Mobius said the prospect for robotics to enhance growing emerging-market productivity is one key reason to be upbeat about the prospects for the market.

Rising Chinese interbank lending rates and bond yields amid a crackdown by Beijing on risky debt in the financial system has unnerved some investors. But Mobius said the Chinese government, rather than scrambling to contain a problem, is acting from a position of strength in an effort to nip a potential problem early.

Mobius has said investors should tread carefully when it comes to individual companies, but that the government will protect major state-owned banks and businesses.

“I keep reminding people that China is a planned economy,” he said.

Mobius also remained upbeat on Mexico, which saw the peso and stocks beaten down in the wake of the US presidential election due to Trump’s pledge to build a wall on the US-Mexico border and fears of a potential trade war between the two countries. The dollar has retreated more than 8% versus the peso since the end of last year.

Mobius in November told CNBC that Mexican stocks were a good buy in the wake of the US presidential election. The Mexico IPC index is up 6.8% year-to-date.

Mobius said he is confident talks on renegotiating the North American Free Trade Agreement will end amicably. “Mexico and America are very dependent on each other in many directions,” he said. Mobius is confident the US dollar is likely to continue weakening versus emerging market currencies after having strengthened too quickly in previous years.

He’s also unconcerned that the Fed’s monetary tightening plans will serve to derail emerging markets. For three years, until January of last year, emerging markets had underperformed in part due to worries about the start of a Fed rate-hiking cycle.

But history shows there’s little long-term correlation between the direction of Fed rates and the performance of emerging market stocks, he said. Investors had previously lost sight of that, he said.

Aside from individual country risks, the biggest threat to the emerging market rally would be some sort of catastrophic event, such as a nuclear incident of some kind or a pandemic.

“But at the end of the day, these are factors that are difficult to predict and difficult to compensate for,” he said. “There’s not much you can do.”